The introduction of Indian digital currency will prove to be a further impetus to economic reforms.
Budget 2022 is a phenomenal step to boost the Indian economy through long-term infrastructure solutions. But work had started in 2016 with demonetization to clean up the economy, followed by GST and direct benefit transfer schemes. The Jandhan Yojna has helped 40 million people open a bank account and become part of the economy, and is hailed as the biggest such initiative. The same goes for UPI, as it revolutionized money transfer and put India at least ten years ahead of developed economies like the United States in terms of online P2P and C2B money transactions.
The introduction of Indian digital currency will prove to be a further impetus to economic reforms. It will be instrumental in raising a large number of people into the middle class and will help solve many of the logistical problems the government is facing right now. Earlier, our former Prime Minister used to say that when the government released one rupee for welfare schemes, only 15 paise reached the real beneficiaries – the poor and disadvantaged. This has been completely transformed as more than 90 Indian government programs use Direct Benefit Transfer (DBT) to credit aid to recipients’ bank accounts.
This is a great achievement on the part of the current government, but there are many new challenges that people are facing despite DBT alleviating their main problem. For example, there have been reports of middlemen demanding blank checks in Punjab from farmers while the Indian government bypasses them and directly transfers money to farmers’ accounts.
On the other hand, there is no way to confirm whether the money provided by the government is being used for the purpose for which it was originally intended. For example, if money was transferred to a bank account for a child’s education as a scholarship, there is no way of knowing if it was actually used for education. To solve such problems where the purpose of freeing victims from help due to ambiguity and lack of supervision, Digital Rupee will prove to be a great boon. It will strengthen traceability and promote accountability since the person concerned will have to use the money in accordance with the objective of the aid.
It can also help address issues where the governance framework is not as effective as the private sector. Take the example of Fair Price Shops which distribute food products at reduced prices. Their coverage, quality of service, and the entire infrastructure itself require a significant sum to operate. With Digital Rupee, there is no need to run government ration stores as the amount will be directly transferred to beneficiaries’ accounts as digital currency, and they can purchase the food items directly from the market. This can help reduce infrastructure and operational costs while ensuring that the objective is correctly achieved.
The introduction of the digital rupee will also boost the collection of indirect taxes by supplementing the GST. This can help the government reduce the focus on direct taxation as a source of revenue and introduce further income tax flexibilities for the middle class. In this way, a collective approach to transforming economic accountability and transparency will help government ensure the well-being of the last person in society. This will help the poor and disadvantaged access welfare schemes, and low-income taxes will help citizens be part of the white economy without hesitation.
According to the statistics disclosed in the latest budget, a person who earns one lakh rupees per month is richer than 97% of the Indian population. The government has set a target of two lakh crore per month in indirect tax revenue through the GST. So if the government gets a reasonable income from indirect taxes, it could reduce the direct income tax to even 10-15,000 rupees per 10 lakh rupees, thus 97% of Indians will be part of the white economy while the remaining 3% would be covered by corporation tax. This will prove to be a big step towards building a 100% white economy. Since the digital rupee can be tracked and traced, it will help create a complete proof system.
The digital rupee will also help contain the shadow economy as larger denominations will be significantly reduced. Cash parked in properties and all these types of black money hoarding instruments will be phased out of the system. In fact, it will make it difficult to carry out illegal activities and finance terrorism, thus giving a huge boost to Prime Minister Modi’s “Minimum government, maximum governance” mantra.
The introduction of the digital rupee into circulation will prove to be a game changer, and I find it will help elevate at least 20% of India’s poor into the middle class over the next decade. The government has largely focused on improving the quality of life and amenities for the middle class over the past decade, which is hugely beneficial for the economy. The wealthiest 1-3% of the economy are likely to travel abroad frequently, spend their money there, and continue to buy foreign goods even in India.
The underdog on the other end may not have the purchasing power to make a meaningful impact on the economy. It is the middle class that has the most impact on the economy, and the introduction of the digital rupee will hugely benefit the middle class alongside the poor. This will help reduce the threat of corruption and foster targeted spending of public funds, help reduce the income tax burden on citizens and ultimately shape a better future for India.
(Author Ambrish Parajiya is a director of GAP Associates and has extensive infrastructure experience, having previously worked to develop Tatkalorry Logistics and Green Mentors Pvt Ltd. The views expressed are personal and do not reflect official position or policy from Financial Express Online.)
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